Where the California Cannabis Industry Lies in 2022

Where the California Cannabis Industry Lies in 2022

Published on 11/18/22

The California cannabis industry was one of the country's first great experiments with the legal marijuana market. However, what was once a bastion of thriving weed businesses is now trying to stay afloat under new regulations and changing tax codes. As one of the major players in this country's roiling riptide of cannabis legalization, California now finds itself struggling to lead the pack in the post-COVID-19 landscape.

History of Cannabis Legalization in California

California has always been a trailblazer in the cannabis industry. First approving medicinal use in 1996, then later, in 2016, California voters approved Proposition 64: The Adult Use of Marijuana Act. Effective November 9th of that year, the act legalized the personal use and cultivation of cannabis for adults 21 years of age or older; reduced criminal penalties for specified marijuana-related offenses for adults and juveniles; and authorized resentencing or dismissal and sealing of prior, eligible marijuana-related convictions. The proposition is also inclusive of provisions on regulation, licensing, and taxation of legalized use.

A provision in the measure gave local governments discretion to ban cannabis businesses from their borders, and many of them did. More than 60% of cities and counties do not allow retail sales. While many of California's most populated areas do allow dispensaries to operate, there are strict limits on many of them. "Cannabis deserts" have only strengthened the illicit market, making it a cheaper and more convenient option for consumers.

Desperate to overcome legal regulations, operators in the California cannabis market are also competing with the still-dominant underground illicit market and are now pushing state leaders to override Prop. 64 six years after the law was put into effect - opening the entirety of the state of California up to retail sales while ending high taxes and confusing regulations.

Cannabis Market Collapse

Systemic Racism and Stigma

"Not only has the state fallen short in promises to right the wrongs inflicted upon Black and brown communities impacted by the war on drugs, but it has also perpetuated regressive war-on-drugs 2.0 policies through oppressive taxation, which must end," said Amber Senter, a co-founder and the executive director of Supernova Women, a nonprofit organization that works to create opportunities for people of color in the industry in a statement to the press. "This is our cry and plea for help."

As the legal market fails, the illegal one thrives - reportedly worth $8 billion dollars in the state - which creates even more issues for POC communities while it claims to be strengthening them. Crimes related to the illicit cannabis market make Black and brown communities even more vulnerable to violence, not to mention reducing their access to regulated cannabis products. Nancy O'Malley, Alameda County district attorney, said this crime is systemic and will remain so until reforms are made to the legal California cannabis market. "The gang violence still exists, but at a higher level," she said - citing incidents like customers being ripped off for their money, robberies, and sales turning violent - even deadly.

A Taxing Policy

The state's tax system has been difficult for small businesses from the start, say cannabis producers in California. Currently, cannabis is taxed at a flat rate of about $161 a pound, on top of a 15 percent excise tax and local cultivation, manufacturing, processing, distribution, and retail taxes.

More than two dozen cannabis executives and legalization advocates have warned California Governor Gavin Newsom in a letter that the market needs immediate tax cuts and a rapid expansion of retail outlets to steady itself after being shaken by illicit dealers and growers. The heavily taxed legal industry is unable to compete with the much more widespread illegal economy, offering lower consumer prices with nearly triple the sales of the legal market. Now, wholesale prices are plummeting, with many craft growers and small businesses expected to fail. This, plus the lack of follow-through on Prop. 64's promises for communities of color, are forcing advocates to blaze a new path for their communities through legal action.

New Hope

A new law, AB 195, seems to be a step in the right direction toward cannabis policy reform. The California Cannabis Industry Association has been lobbying for the elimination of the cultivation tax since it went into effect, saying in a statement: "Zeroing out the cultivation tax indefinitely and shifting excise tax collection from distribution to retail are big wins for our industry! We also achieved tax relief for at least three years, successfully pushed back on an automatic tax increase, which would have taken effect in 2024, bolstered enforcement against unlicensed operators, and provided additional relief for social equity operators."

Other reforms in the new bill include $40 million in tax credits, including $20 million for storefront retail and microbusinesses and $20 million for cannabis equity operators, and adding enforcement tools to fight against the illicit cannabis market, among other guarantees of tax decreases. Unveiling his 2022-23 budget proposal, Governor Newsom said he supported cannabis tax reform and planned to work within the year to improve policy and strengthen the legal California cannabis market.

What are your thoughts on the legal market in California? How can we save small bud businesses on the front lines? Let us know in the comments below!

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